Royal Dutch Shell: Downstream Benefit

Buy-recommended Royal Dutch Shell plc (RDS.A) offers unlevered appreciation potential of 16% to estimated net present value [NPV] of $94 a share revised up from $84 a share on May 29 when we raised our long-term oil price to $66 a barrel from $60.

Second quarter results reported on July 26 benefited from record downstream unlevered cash flow (Ebitda) along with record refining margin (NY Harbor 3-2-1). NPV for the mega cap stock looks low compared to our estimates for some thirty other producers (see table Functional Cash Flow and Present Value).

At the same time, Chief Executive Jeroen van der Veer is seeing success in his effort to restore Shell’s luster after a tarnishing in the past few years. Regardless, the trend in long-term oil price appears to be up despite volatility of short-term quotes (see chart Six-Year Commodity Price Meter). Finally, RDS stock also has positive momentum as it trades above its 200-day average.

click to enlarge

Originally published on July 26, 2007.